Kraft Heinz’s split plan prompts downgrade review from Moody’s

Kraft Heinz’s investment-grade credit rating is being reviewed for a potential downgrade by Moody’s Ratings after the company’s plan to split its business raised uncertainties over its future capital structure.

Moody’s has placed Kraft Heinz’s Baa2 senior unsecured ratings and Prime-2 commercial paper ratings under review for downgrade, according to a release. It has changed its outlook on all KHC entities to under review from stable.

Moody’s said it will assess the benefits and risks of the separation. While splitting the business could lead to greater focus on the respective segments, “both companies continue to manage brands that are very mature in their main market at a time when consumers are pulling back on spending,” it said in the release.

KHC said Tuesday it plans to split into two separate companies, undoing a mega-deal ushered in a decade ago that turned the maker of Kraft Mac & Cheese into one of the largest packaged food sellers in the world.

The packaged-foods company said it expects both new companies to retain their investment-grade status, adding that the existing debt of KHC would become an obligation of Taste Elevation or be refinanced.

“The review will focus on the benefits and risks to the separation, including execution risks to splitting up the companies, the operating outlook for the Taste Elevation and NA Grocery businesses, and the ultimate planned capital structures and financial policies of the two entities,” Moody’s wrote.

Moody’s also considers KHC’s leverage ratios after the split. It expects new debt will be issued to fund the NA Grocery business and repay some existing debt.

“While this could leave leverage in the low 3x range for both companies, leverage and dividend policies of both companies have yet to be determined,” it wrote.

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